Driving Divestiture Value: Transacting and Transforming on Parallel Tracks | Deloitte US has been saved
Once a company has determined that a divestiture is appropriate, management faces two main tasks. One is executing the transaction—ensuring that the sale or spinoff generates the fullest possible value and makes it through to closing. The other is a transformation. This is about implementing the changes needed to get the remaining company fit-for-purpose—fit for its new life as a more streamlined, focused business. Too often, the transformation gets delayed until after the transaction is done.
It is better for the transaction and the transformation to move ahead on parallel tracks. As the divestiture transaction is being shaped, the transformation plans should be laid, setting up the organization to implement changes as soon as the deal closes. The transformation is where the opportunity lies—where it becomes possible to make good on the thesis that motivated the divestiture in the first place.
A divestiture, from decision to execution, takes a significant amount of time. In Deloitte's 2020 Global Divestiture Survey, about half of responding companies said it takes seven to 12 months, and another quarter of the respondents said it may require as long as 18 months. During this period, management and employees are distracted and stressed, which is not ideal when the team is then asked to begin on another big project.
A sequential approach risks having everyone feel like the organization is going through one shock after another. At worst, the transformation ends up treated as an afterthought. A simultaneous effort, on the other hand, can generate the feeling of a coordinated endeavor in which each piece helps to build momentum for the entire process and energizes the team.
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Some companies are better positioned than others to pursue a transformation in a parallel process with a divestiture. Operational performance and financial position are internal factors that bear on an organization's ability to tackle both initiatives at the same time. External factors to consider may include the complexity of the divestiture transaction, the market expectations surrounding it, the presence of activist shareholders, and the macroeconomic and regulatory environments.
Leadership should consider, in particular, how often the company does deals. Some organizations do a lot, and their transaction competencies are well developed. They are likely to be better prepared to pursue a transformation right along with the divestiture transaction. Another factor may be the level of change management experience among those who will be tapped to lead activities such as a deep dive on expenses or an organizational redesign.
A divestiture presents an organization with a natural opportunity to conduct important conversations about what the business should look like and how it should operate. The decision to shed assets will typically be informed by a high-level view on a company's core assets and competencies, inviting a process that goes further to look closely at all facets of the business.
There's a broad range of potential changes that can be a part of a transformational effort, across four key areas:
Operating Model. When a company is trying to sharpen its focus by divesting non-core assets, it makes sense to look closely at the operating model for the remaining business. Examining what work is being done where can create opportunities for new efficiencies. Some work may be moved to shared services to improve resource allocation, for example. Leadership should be asking whether the organizational structure is aligned with a changed operating model.
Expenses. These efforts on operating model and organizational design are likely to yield opportunities for labor cost savings. At the same time, a proper review of spend management practices may be needed, and this will require that proper tools and procedures are in place to organize, classify, and rationalize expenses.
IT. A digital transformation may be an appropriate piece of an overall transformation for a company doing a divestiture. To the extent that legacy systems weigh on an organization's ability to benefit from digitalization, this may be a good moment for targeted digital investment.
Supply chain. In separating operations to be divested, there may be a need to disentangle a supply chain that has been serving combined operations. This creates an opportunity for a more thorough reexamination to ensure the supply chain is well designed to support the products and services that remain. The supply chain may need to be rationalized—shortened, consolidated, streamlined.